How to Introduce Innovation in Your Compliance Program

In case you were too worn out from this weekend’s college basketball tournament bonanza, both the men’s and women’s, to stay up on Sunday night and watch ESPN; the Houston Astros won their 4000th game and had their first American League (AL) win so that they now lead the AL in overall wins. I guess Astros owner Jim Crane, he of “I-made-a-$100-million-dollars-so-I-must-know-what-I-am-doing”, thinks he knows a thing or two about innovation. Or perhaps not?

While Brother Crane is no doubt reveling in his first win as the Astros owner, I thought about the question of how a compliance professional can use innovation to improve a company’s overall compliance program? This topic of innovation was recently explored in an article in the MIT Sloan Management Review, Spring 2013 issue, entitled “How Innovative is Your Company’s Culture?” by Jay Rao and Joseph Weintraub. In this article, the authors tried to determine how companies could develop a more innovative culture. While the article did not focus on compliance, I found the ideas that they put forward as a useful manner for compliance practitioners to think through and implement innovation into their Foreign Corrupt Practices Act (FCPA) or UK Bribery Act compliance programs.

The authors believe that when it comes to innovation, most companies focus on resources, processes and measurement because they are tool-oriented and more easily measured. Conversely companies tend to focus less on people-oriented components of innovation success, for example values, behaviors and climates, because they are harder to measure. The authors quote one Chief Executive Officer (CEO) who had said, “The soft stuff is the hard stuff.” Yes the authors believe that it is the soft-stuff, people issues where the greatest opportunity for innovation can occur. I believe that this holds true for innovation in a company’s compliance program as well.

The authors posit that there are six building blocks to an innovative culture. These six building blocks are not static conditions but are inter-related and to an extent, interdependent on each other. The six building blocks are:

Values. The authors believe that it is a company’s values which drive both its priorities and its decisions. It is also reflected in where a company spends its money. If a company is innovative, it tends to emphasize creativity and encourage continuous learning. Values are more than what leaders say or what they write but drive by what they do and what they invest in.

Behaviors. This describes how company employees act in the cause of innovation. This is demonstrated when leaders work to energize employees and to make sure that things happen within the company. For employees it means working to overcome obstacles around innovation and making things happen when “resources and budgets are thin.”

Climate. The authors believe that climate is “the tenor of workplace life.” This means that innovation is encouraged and employees take it on “with enthusiasm.” People are allowed to take risks within a safe environment and the company encourages “independent thinking.”

Resources. Within the framework of their six building blocks, the authors believe that resources have “three main factors” people, systems and projects.” Of these three factors, people are the most important because they have the most “powerful impact on the organization’s values and climate.”

Processes. The authors state that processes are the route by which innovations follow as they are developed within an organization. These processes include not only the track they follow but also the criteria for capturing and sifting through new ideas for “reviewing and prioritizing projects and prototyping.

Successes. The authors believe that successes in a company are “captured at three levels: external, enterprise and personal.” These can help to demonstrate if an innovation is paying off. But more than simply financial success, this building block “reinforces the enterprise’s values, behaviors and processes, which in turn drive many subsequent actions and decisions”.

There are several lessons that the compliance practitioner can derive from these six building blocks to help put innovation into your company’s compliance program. I think the first is that you must create an environment where innovation is not only accepted but encouraged in your company. A simple top-down structure will not accomplish this goal. Not only do you have to go out into the field but you must listen to what people in the field are telling you. Simply because you get push-back from the business folks does not mean that their suggestions are always wrong. There might be some nugget in such push-back which allows you to do something faster, quicker or with more compliance efficiency. Even if the suggestion or push-back does not warrant inclusion into your compliance program, you should at least acknowledge employees for their suggestion.

Another technique that you might use based on these building blocks is the compliance champion. Such a person can be used not only as an initial point-of-contact for your compliance program but you can use non-compliance department compliance champions as innovation leaders in your compliance program. You could have them meet (in person or virtually) on quarterly intervals to discuss compliance program innovations that they might come up with based upon their more focused training and work as a compliance champion in your company. As the authors might say, you can develop your own internal community of compliance innovation experts that you could call upon as an internal resource. Further, in their role as your initial point-of-contact for your compliance program, these compliance champions could also act as a filter to bring you other innovative ideas from your company’s workforce.

This article by Rao and Weintraub had some very interesting ideas about how a company can ingrain innovation into its compliance program. Many companies have worked very diligently on resources, processes and measurement of their compliance program. However, as compliance programs mature and become a part of every well-run company, compliance practitioners can move towards other themes of innovation; that of values, behaviors and climates. So while I am not yet convinced that the Astros $20MM payroll really was a positive innovation, I do believe that the authors have set out some very thoughtful ideas that you can incorporate into your compliance efforts going forward.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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